I came here to report that when playing the Gnome puzzles your death protection doesn't work. I don't know if I only have it because I was a fighter in my last dungeon or what. It's funny because I level up and the puzzle says "you failed."
But then I finally hit "Return to Town" instead of "Retry Puzzle" and I found that my puzzle was flagged as completed, despite not killing all the monsters. So I went on to the second Gnome puzzle. Tried it a few times, determined it wasn't possible w/o death protection, and went back. Now that one was also cleared. Tried the third, died intentionally w/o killing anything and went back. Was awarded the item for completing all of them.
I have no idea what it does, but I have a Soul Gem now.